IGI Logo

HMCL’s Q2 performance was healthy and broadly along expected lines, highlighted by underlying ICE margin at 15% (implying a ~90bps hit from EVs with reported EBITDA at 14.1%, up 260bps YoY/30bps QoQ). The festive season has started well for 2Ws, with HMCL witnessing ~15% YoY growth during the festive season so far. Valuations at ~12.8x its FY26 P/E and ~5.9% dividend yield are attractive amid the return of the rural-demand cycle (post 3- 4 years of elongated challenges) and multiple initiatives being undertaken for addressing strategic portfolio gaps (particularly in premium motorcycles). We have marginally tweaked our FY24E/FY25E/FY26E EPS by 1%. We maintain BUY with a TP of Rs4,020/share (unchanged 16x P/E on FY26E Core EPS and value of investments/cash at ~Rs500/share).

Healthy performance along expected lines

HMCL’s domestic 2W market share has been largely stable YoY at 29.7% (down 210bps QoQ, as Q1 is usually strong for HMCL because of the marriage season). Revenue grew by 4% YoY to Rs94.5bn (in-line), despite a ~1% YoY volume decline, with realization up 5% YoY (3% QoQ). EBITDA margin expanded ~30bps QoQ to 14.1% (in-line); gross margin expanded 336bps YoY/78bps QoQ (despite ~90bps drag from EVs) on the price hike, lower commodities, and product mix. Adjusted PAT grew by 47% to Rs10.5bn on improved EBITDA and higher other income.

Earnings call KTAs

1) Strong start to the festive season for the 2W industry with HMCL witnessing ~15% YoY growth during the first 17 days of the festive season; there has been double-digit growth for entry-level motorcycles (HF Deluxe) and healthy return of rural demand as well; 2) 100cc category has been struggling for an extended time on affordability issues; now the entry-level segment is coming back with the return of first-time buyers; 3) The company is likely to come out with new launches in the 125cc category in the next four to six quarters with focus on premium variants (Xtec’s penetration is now at ~22% of overall sales); new scooter launches are also planned; 4) By the end of the festive season, inventory levels will normalize to 4-6 weeks of inventory; 5) HMCL would upgrade the retail buying experience by rolling out >500 exclusive ‘Hero 2.0’ stores over the next six months (200 stores already upgraded); 6) Order book for Harley Davidson X440/Karizma stands at ~25K/~14K; HMCL would launch over 100 exclusive premium stores in prime locations in the next six months; 7) Presence of Vida EV to be scaled up to over 100 cities by Mar-24; current weekly production run-rate is at 1K; 8) Mexico, Colombia, Nigeria, Sri Lanka, Bangladesh and Nepal have been highlighted as priority export markets; scooter exports stood at ~50K in Q2 as compared with 31K in Q1; 9) Longer-term margin guidance is unchanged at 14-16%; 10) Rs10bn annual capex guidance (largely for premium products and EVs); 11) Spares etc. reported revenue of ~Rs.13.5bn in Q2 (double-digit growth YoY)

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf

& SEBI Registration number is INH000000354